Wall Street often relies on analysts' estimates based on corporate financial data to recommend stocks and determine target prices. The credibility of stock analysts sometimes comes into question, however. You might consider learning the ropes and acting on your own behalf if you're the self-reliant type who enjoys doing a little research. It's a matter of mastering the process.

Getting Started in Stock Analysis

The first step in thinking like an analyst is to develop a probing mind regardless of whether you're looking for growth or value. You must determine what to buy or sell and at what price. Analysts usually focus on one industry or sector. They focus on select companies within that sector. Analysts aim to probe the affairs of the companies on their list by analyzing their 澳洲幸运5官方开奖结果体彩网:financial statements and all other available information.

Analysts also probe the affairs of a company's suppliers, customers, and competitors to cross-check the facts. Some visit the company and interact with its management to gain a first-hand understanding of the workings of the company.

It's always better to research several stocks in the same industry so you have a comparative analysis. Access to information isn't usually an issue. You can take up just one or two firms at first to test how well you can analyze them. You can think of putting more stocks under your lens when you have more experience.

Review Analyst Reports

Begin your analysis by looking over analyst reports. You don't have to blindly follow sell-or-buy recommendations that analysts make but you can read their research reports to get an overview of the company. Look at its strengths and weaknesses, main competitors, industry outlook, and future prospects.

Reviewing reports by different a𓆏nalysts can help you identify any common threads. The basic facts in all reports are common. Take a closer look at their earnings forecasts which ultimate⛎ly determine their buy or sell recommendations. Different analysts may set different target prices for the same stock. Always look for the reasons.

What to Analyze

You have to understand the various steps involved in stock analysis to arrive at a reliable conclusion about a stock. Some analysts follow a top-down strategy, starting with an industry and then locating a winning company. Others follow a bottom-up approach, starting with a particular company and then learning about the 澳洲幸运5官方开奖结果体彩网:outlook of the industry. You can create your own order but the entire process should flow smoothly.

Industry Analysis

Sources of information are publicly available for almost any industry. The 澳洲幸运5官方开奖结果体彩网:annual report of a company itself often gives a good overview of the industry and its future growth outlook. Annual reports also reveal the major and minor competitors in 🍸a particular industry. Simultaneously reading the annual reports of two or three companies should give a clearer picture.

Business Model Analysis

Focus on a company's strengths and weaknesses. There may be a strong company in a weak industry and a weak company in a strong industry. Their strengths are often reflected in factors such as their unique brand identity, products, customers, and suppliers. You can learn about a company's 澳洲幸运5官方开奖结果体彩网:business model from its annual report, trade magazines, and we💧bsites.

Financial Strength

Understanding the financial strength of a company is the most crucial step in analyzing a stock. You should be able to understand a company's 澳洲幸运5官方开奖结果体彩网:balance sheet, 澳洲幸运5官方开奖结果体彩网:income statement, and 澳洲幸运5官方开奖结果体彩网:cash flow statements. Numbers in the 澳洲幸运5官方开奖结果体彩网:financial statements often speak louder than the glossy words oඣf an a🍃nnual report.

Management Quality

Management quality is another critical factor. It's often said that there are no good or bad companies, just good or bad managers. Key executives are responsible for the future of the company. You can assess company management and board quality by doing some research on the internet. There's a plethora of information out there about every public company.

Growth Analysis

Stock prices follow earnings. You have to know where future earnings are headed to know whether a stock's price will be moving up or down. Unfortunately, no quick formula can tell you what to expect for future earnings. Analysts make their estimates based on past figures of sales growth and 澳洲幸运5官方开奖结果体彩网:profit margins alꦅong with profitability trends in that partic𝔍ular industry.

Growth analysis involves connecting what's happened in the past to what's expected to happen in the future. Making accurate earnings forecasts is the ultimate test of your stock analysis capabilities because it's a good indication of how well you understand those industries and companies.

Valuations

The next step is to determine the worth of a company. Analysts must figure out if the current 澳洲幸运5官方开奖结果体彩网:market price of the stock is justified in comparison to the company's value.

There is no "correct value" and analysts use different parameters. Value investors look at 澳洲幸运5官方开奖结果体彩网:intrinsic worth. Growth investors look at 澳洲幸运5官方开奖结果体彩网:earning potential. A company selling at a higher 澳洲幸运5官方开奖结果体彩网:P/E ratio must grow at a higher price to justify its current price for growth investors.

Target Price

The final step is to set a 澳洲幸运5官方开奖结果体彩网:target price. You can calculate a high and low target price by multiplying estimated 澳洲幸运5官方开奖结果体彩网:earnings per share (EPS) with the estimated high and low P/E Ratio.

The high and low target price is the 澳洲幸运5官方开奖结果体彩网:price band within which the future stock price is likely to 🌠move in response to expected future earnings. You can use it to reach your destination when you know the target price.

The Bottom Line

The largest constraint in becoming your own stock analyst is time. 澳洲幸运5官方开奖结果体彩网:Retail investors who have many other things⛎ to do may not be able to devote as much time as professional security analysts.

The ultimate goal of every investor is to make a prꦜofit but not every investor or analyst is good at it. Never blindly accept what stock analysts have to say and always do your research. Not everybody can be an investing expert but you can always improve your analytical skills.

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